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Higher Minimum Wage, Faster Job Creation

The standard argument against a higher minimum wage is that it will lead to job loss as employers, unable to pay more, lay off current workers or don’t hire new ones.

It’s important to state up front that research and experience don’t bear that out. The minimum wage has been raised many times without hurting employment. Rather than cut jobs, employers have offset the cost of higher minimums through reduced labor turnover. Employers also cope with a higher minimum by giving lower raises further up the wage scale, raising prices modestly or other adjustments.
Bolstering what we already know, new evidence shows that job creation is faster in states that have raised their minimum wages. The Center for Economic and Policy Research used federal labor data to tally job growth in 13 states* that raised their minimums in 2014. In all but one, New Jersey, employment was higher in the first five months of 2014 (after the wage increase) than it was in the last five months of 2013 (before the wage increase). In nine of the 12 states with faster growth, employment gains were above the national median.

That doesn’t mean that a higher minimum wage caused the job growth, a point clearly stated by the researchers at CEPR. But it indicates that raising the minimum didn’t hurt job growth, as opponents claim ad nauseam.

That hasn’t stopped those opponents — especially in the restaurant industry — from attacking the findings. But their only argument is bluster. They don’t dispute the job gains in states that have raised their minimums. Rather, they claim that it may mask job loss among low-wage workers directly impacted by the raise. To support that conjecture, they have pointed to a study from 2010, sponsored by the restaurant lobby, which found a link between a higher minimum wage and lower teen employment.

The fact of the matter is that no one knows why job growth has been above trend in states with higher minimum wages. A plausible explanation is that a minimum-wage hike may have a more pronounced stimulus effect in a generally weak economy than it would have in a strong economy, as workers who long have struggled to make ends meet quickly spend their extra dollars, providing an economic boost that help job growth.

What is clear is that there is no need to fear a minimum wage increase — unless, apparently, you are a restaurant lobbyist, whose job depends on keeping wages low for already very low paid waitresses, waiters and fast-food servers.

*Four states passed legislation to raise their minimum wages in 2014: Connecticut, New Jersey, New York, Rhode Island. Nine states automatically increased their minimums in line with inflation: Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont and Washington.